Trade War Ping-Pong Diplomacy
Before the U.S. stock market opened on Monday, the China’s Ministry of Finance added the latest tit-for-tat escalation in the U.S.-China Trade War, announcing 25% import tariffs on thousands of U.S. products starting June 1. That followed the Trump Administration’s tariff boost to 25% on $200 billion in Chinese goods. That took effect on May 10. An up and up we go. (Reuters has a good timeline of the trade war volleys dating back to June 2016.) We’ve noted before that Boeing jetliners have been spared tariffs (Gulfstream’s aircraft have not).
The more energetic corners of Chinese media are again raising the specter of using Boeing’s China backlog for leverage. “China may stop purchasing US agricultural products and energy, reduce Boeing orders and restrict US service trade with China,” tweeted Hu Xijin, Editor-in-chief of China’s Global Times. GT has been described as the Fox News of China and is among the more extreme voices among state media. You can go back two and a half years to see the same rhetoric from GT.
However, the trade war and 737 Max grounding have a likely intersection. The CAAC, on top of grounding the aircraft, has pulled the jet’s airworthiness certificate, pending a review by the country’s aviation regulator. TAC delved into the larger implications on the increasingly chaotic and transactional certification relationships between the U.S. and China in April. “There will be horse trading.”
Commercial aircraft orders are the nuclear red line for the trade war. An import tariff, of course, puts the cost on Chinese airlines and Chinese consumers. And deferring jets to China only increases their final sale price with escalation. Canceling the Boeing orders would have the most direct harm to the U.S. aerospace industrial system and its efforts to maintain output. (Chinese airlines easily absorbed the 737 Max grounding) Three tweets earlier on Monday, Mr. Hu also noted a more important strategic guide going forward: “The two sides will then compete on endurance. China’s political system will ensure we won’t lose.”
Elsewhere in China, a China Southern A380, Xiamen Air 787, China Eastern A350 and an Air China 747-8 made the first landings at Beijing’s new Daxing Airport. A notable (and balanced) choice of aircraft. The landing trials are coming ahead of the capital city’s new airport’s opening later this year.
Two Months Into Max
May 13 marks a full two months since the 737 Max was grounded by the FAA, which was the last major regulator to do so. The Wall Street Journal reported Monday that the Max wouldn’t likely see service again until late August as certification of the revised MCAS software has slipped to later in May. Not mentioned is that inside OAG, the master schedule keeper for global air travel, Alaska Airlines quietly shifted their 737 Max 9 service entry to August 27, back two weeks from August 15. The airline has yet to take delivery of its first, nor has the aircraft emerged from final assembly in Renton yet.
Not far from Loretta’s Northwesterner — an excellent burger joint in Seattle — you’ll find a bridge over the Duwamish River next to Boeing Field. That bridge overlooks a packed overflow parking lot of grounded 737 Max aircraft from more than a dozen airlines. You’ll see nearly 50 in stasis— more than a month’s current production. Spaces are harder to come by. TAC is told by a knowledgable official to expect Boeing to begin storing aircraft in the near future out at Moses Lake in Eastern Washington state.
Elsewhere, U.S. pilots unions have been served a subpoena about the development of the 737 Max. The Seattle Times looks at inexplicable changes to the horizontal stabilizer trim cut-out switches. The New York Times and WSJ have looks at the jet’s brand rehab and restoring faith in the aircraft. Bloomberg’s Peter Robison has a lengthy dissection of Boeing’s shareholder culture. Ethiopian Airlines CEO Tewolde GebreMariam sat down with NBC Nightly News and says the airline may get rid of its currently 737 Max fleet altogether.
Boeing management also hosted a slate of meetings last week with investors. No signs of similar moves with media. Lastly, the U.S. House Transportation and Infrastructure Committee holds its first 737 Max hearing on Wednesday, May 15.
WestJet, Onex…and Delta?
WestJet, which has spent the last few years not really acting like WestJet, was sold to Canadian private equity firm Onex Corp. Monday morning for $5 billion. WestJet has been struggling with its transformation into a full-service carrier, but the management exit is just one more big strategic change for the airline. About 90% of the employees have a piece of the airline and are poised to get an average profit of $21,000 (CAD) when the deal closes after a spate of approvals.
Onex has a long history of aviation and aerospace investments and has typically held its aerospace projects for 5-9 years (notably Spirit AeroSystems and Hawker Beechcraft). One player to watch will be Delta Air Lines, which has an expansive joint venture with the Canadian carrier. Last year, Canada increased the total foreign ownership cap to 49% for its airlines, notes TAC contributor Howard Slutsken, opening the door to some interesting tie ups as Onex moves toward its own exit. Delta already has a 49% stake in AeroMexico and every strategic action the airline takes points the widget closer to NAFTAIR.
In Case You Missed It
TAC went deep on the MRJ’s future commercial prospects last week. Also, the piece included our second interactive data visualization, which dissected the changes in capacity and range of the 60 to 76-seat market since 2010. In an interview on Friday after the company formally opened its new U.S. headquarters, Mitsubishi Aircraft Corp.’s leadership provided a teaser for the coming changes to the MRJ70. That included the end of the MRJ70. The company is now calling it “the concept,” which we’ll hear more about at Le Bourget next month.
Emergency Evacuation Post Script
After last week’s point on the Aeroflot landing accident in Moscow, TAC received notes from two knowledgeable readers who rightly pointed out that the Sukhoi Superjet, CS100, E190-E2 and E195-E2 all underwent full-scale evacuation tests during their development over the past 10 years. The next all new airliner to undergo a full-scale demonstration for the 90-second requirement will be the MRJ90 before it is certified in mid-2020. TAC regrets the oversight, but always appreciates the opportunity to learn.